Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the Commercial Paper of Nuvama Clearing Services Limited [NCSL, part of the Nuvama group].

 

The rating reflects Nuvama group’s comfortable capitalisation, strong market position among non-banking players in the wealth management business, and benefits from the association with PAGAC Ecstasy Pte. Ltd (PAG) along with its affiliates. These rating strengths are partially offset by the susceptibility of earnings to financial market conditions as well as high concentration in lending operations.

 

The equity shares of Nuvama Wealth Management Ltd (NWML) got listed on the National Stock Exchange (NSE) and the BSE Limited (BSE) on September 26, 2023. After listing, PAG along with its affiliates (classified as promoter and promoter group) hold 54.9% stake in NWML as on December 31, 2024 while the remaining 45.1% comprises of public shareholding.

 

After its segregation from Edelweiss Group and rebranding as ‘Nuvama’ in fiscal 2022, the operational, financial and managerial synergies between the Nuvama group and Edelweiss group have reduced significantly with the former functioning as an independent group. 

 

On December 18, 2023, NWML informed the exchange about an order passed by the Securities Appellate Tribunal (SAT) involving [(NCSL; now a part of Nuvama Group and erstwhile, Edelweiss Custodial Services Ltd)] in the matter of Anugrah Stock Broking Pvt Ltd. The order dismissed NCSL’s appeal, related to transactions from 2019/20 (Anugrah case), against the Member and Core Settlement Guarantee Fund Committee of NSE Clearing Limited (NCL). The SAT upheld the committee’s earlier order requiring reinstatement of securities worth Rs 460 crore liquidated during Q4 FY2020 and Q1 FY2021.  Of this, Rs 236 crores has already been allocated to NCL earlier and NCSL had subsequently placed Fixed Deposit of Rs 150 crores in favour of NCL, as collateral. NCSL has filed an appeal before the Hon’ble Supreme Court of India, inter-alia, seeking a stay against the impugned order of the SAT, which is currently pending hearing for admission.

 

As part of the publicly stated stance of the erstwhile promoters - Edelweiss group (Edelweiss Financial Services Limited [EFSL] and its subsidiaries)[1] and its scheme of arrangement with the current majority shareholders (PAG), the former shall indemnify Nuvama group and PAG against any potential net liability arising out of this matter.

[1] https://www.bseindia.com/xml-data/corpfiling/AttachHis/f00dc86f-eff1-48ba-9158-eb96e27ef517.pdf

https://www.bseindia.com/xml-data/corpfiling/AttachHis/defb5bf5-3d44-4a44-9d11-fd09e67684a1.pdf

Analytical Approach

Crisil Ratings has consolidated the business and financial risk profiles of NWML and its subsidiaries. This is because these entities, collectively referred to as the Nuvama Group, have significant operational, financial, and managerial linkages, and operate under the common brand name ‘Nuvama’.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable capitalization: The Nuvama group had a networth of Rs 3,216 crore as on December 31, 2024 (Rs 2,899 crore as on March 31, 2024) and is well-placed to support its growth plans for the medium term. Most of the businesses are fee-based, with borrowings largely comprising onward short-tenor lending to wealth business clients for margin/ESOP financing and LAS.

 

The consolidated leverage ratio of the group stood at 2.4 times as on December 31, 2024 as compared to 2.3 times as on March 31, 2024.

 

• Strong market position among non-banking entities in the wealth management business: The Nuvama group is one of the leading non-bank wealth management players with client assets[2] of Rs 4,52,047 crore as on December 31, 2024 (Rs 3,45,957 crore as on March 31, 2024).

 

The group largely caters to affluent and high-networth individuals (HNIs), ultra HNIs (UHNIs), family offices and institutional clients across various business segments. It operates in four key verticals i.e Wealth management (Affluent and HNI and UHNI segment), asset management, asset services (clearing and custody business) and capital market business including institutional equities business and investment banking. 

 

In the institution equities business, the group is one of the largest domestic brokerage houses by volume. The group is also a leading player in the investment banking business, offering advisory on initial public offers, mergers and acquisitions, private equity and fixed income. The asset management business is at a relatively nascent stage, comprising alternate investment funds and portfolio management schemes. This business had an AUM of about Rs 11,267 crore as on December 31, 2024.

 

The group holds a competitive position in majority of businesses and should further strengthen its market position over the medium term.

 

• Benefits from association with PAG: PAG acquired a majority stake in NWML from the Edelweiss group in fiscal 2021, through both primary and secondary investment. As on December 31, 2024, PAG held 54.9% in Nuvama.

 

PAG is the largest Asia focused private investment fund, with an AUM of about $58 billion. PAG has three board representatives and supports the strategic initiatives of the group. Association with PAG also allows Nuvama group the opportunity to expand its clientele in the wealth and asset management businesses and raise external debt at competitive rates.

 

Weaknesses:

• High concentration in lending operations: Nuvama group extends loans against shares (LAS) to clients of Nuvama group. As on September 30, 2024, the loan portfolio of the group stood at Rs 4,667 crore, having marginally de-grown from Rs 4,863 crore as of March 31, 2024. More than half of this portfolio comprised LAS, while the remaining was constituted by ESOP financing and other segments, including margin trading facility. Typically, the size of this portfolio exhibits strong correlation to the ebbs and flows of capital and money market, and remains susceptible to both domestic and international macro events.

 

Against this loan portfolio, Stage III assets were nil as on December 31, 2024 and as on March 31, 2024. However, asset quality here remains inherently vulnerable to the vagaries of capital markets.

 

• Susceptibility to cyclicality and volatility in capital-market-related businesses: Since corporate and investor sentiments drive portfolio flows in the wealth management business, business and earnings are susceptible to cyclicality and volatility in capital markets as well as various other political, social and macroeconomic factors.

 

The group is also exposed to regulatory risk. Unlike lending operations, wealth management is largely fee-based, and thus, any credit event has a relatively lower impact on the capital base. However, these businesses operate in a highly regulated environment, and any unanticipated change can adversely impact the business model. For instance, in the last few years, regulations that prohibited upfront commissions, led to a sharp erosion in commission income. Many players saw their margins getting eroded as they have adapted or are in the process of modifying their respective business models. Similarly, in the broking business, regulation on the upfront margin requirement by the Securities Exchange Board of India has increased borrowing requirements of players, thereby impacting their leverage and earnings.

 

Therefore, any regulatory change that could adversely impact the business, will remain a key monitorable.

[2] Earlier referred to as Assets Under Advisory (AUA)

Liquidity: Strong

As on December 31, 2024, the group had liquidity of Rs 2,889 crore of which Rs 1,090 crore was in the form of cash and cash equivalents, Rs 450 crore was unutilised bank lines, and Rs 1,006 crore was in the form of securities held for trading. This adequately covered the debt obligations scheduled for maturity till June 2025.

Rating sensitivity factors

Downward factors:

• Regulatory actions in product segments of the group weakening the overall business risk profile
• Significant increase in gearing to, and it remaining above, 3.5 times for a prolonged period

About the Company

NCSL was incorporated on 16 October 2008.  NWML is the ultimate holding company.

 

NCSL is registered with SEBI as a Clearing member and as a Professional Clearing Member registered with NSE Clearing Ltd (NCL), Indian Clearing Corporation Ltd (ICCL), Multi Commodity Clearing Corporation of India Ltd (MCXCCL) and National Commodity Clearing Ltd (NCCL) which clears and settle trades of various Trading Members and Custodial Participants. Further NCSL is also providing Fund Accounting Services to Portfolio Managers (PMS) and Alternative Investment Fund (AIF) and Domestic Body Corporates. The Company invests in fixed deposits and other highly callable instruments as part of its treasury activities. As on December 31, 2024, the company had assets of Rs 14,581 crore.

 

On a standalone basis, NCSL reported a profit after tax (PAT) of Rs 252 crore on total income of Rs 552 crore for fiscal 2024, against a profit of Rs 98 crore on total income of Rs 299 crore for fiscal 2023.

 

The reported PAT for the nine months ended December 2024 was Rs 358 crore on total income of Rs 718 crore.

About the Group

The group comprises Nuvama Wealth Management Limited (NWML) and its 12 subsidiaries and 1 associate and 1 joint venture. On June 4, 2024, the group has incorporated wholly owned subsidiary with the name of Nuvama Wealth Management (DIFC) Limited in Dubai.

 

NWML was a wholly owned subsidiary of EFSL till 2020 and in the second quarter of fiscal 2021, the group announced the sale of majority holding in the wealth management business to PAG. To implement the stake sale, in fiscal 2022, the wealth management and asset management businesses were segregated into two verticals, namely EWM and EAM.

 

The wealth management vertical was retained under Edelweiss Securities Ltd and renamed NWML in August 2022.

 

Its equity shares were listed on the NSE and BSE on September 26, 2023.

 

Nuvama has built a strong foundation of trust and reputation in the Indian market over 25 years. As one of India’s leading integrated wealth management firm in India, Nuvama oversees Rs 4,52,047 Cr of client assets and caters to a diverse set of clients which includes 12+ lac affluent and HNIs and 4,200+ of India’s most prosperous families, as of Q3 FY25. Nuvama offers wealth management solutions, covering investment advisory, estate planning, investment management, lending and broking services for individuals, institutions, CXOs, professional investors, and family offices. It also offers a wide bouquet of alternative asset management products and is a leading player in asset services and capital markets.

 

The group reported net profit of Rs 625 crore on total income of Rs 3158 crore for fiscal 2024 as compared to a net profit of Rs 305 crore on total income of Rs 2230 crore for fiscal 2023. For the nine months of fiscal 2025, it reported a profit of Rs 730 crore as against Rs 444 crore, for corresponding period, last year.

Key Financial Indicators

As on/for period ended	Unit	December 2024	March 2024	March 2023
Reported networth	Rs crore	3216	2899	2259
Total assets	Rs crore	26278	20387	12716
Total income	Rs crore	3045	3158	2230
PAT ^	Rs crore	730	625^	305
Stage III assets	Rs crore	Nil	Nil	Nil
Gearing	Times	2.4	2.3	2.4
Return on assets^	%	4.15%	3.78%^	2.62%

^For March 2024, the PAT figure includes the impact of net income accounted for the demerged undertaking in its books (Rs 44.28 crore). Upon adjusting the same, the normalized PAT and RoA for Fiscal 2024 would be Rs 584 crore and 3.53%, respectively.

Any other information: Not Applicable